Tracking the market and economic trends that shape your finances.

Small investors still counting on stocks for retirement

That's the thesis of a new study, which says Americans still have faith in the stock market's long-term potential even though they have reduced their equity investments in recent years.

The study analyzed more than 23 million 401(k) retirement accounts nationwide. It was done by the Investment Company Institute, a mutual-fund trade group, and the Employee Benefit Research Institute, a research organization.

The study showed that 62% of 401(k) participants had money in stocks last year (defined as either stock mutual funds or company stock).

Four in 10 people had more than 80% of their 401(k) money in stocks in 2010. That's down from 54.1% of people who had such a large helping of stocks a decade earlier, but it still represents a significant amount.

The percentage of 401(k) investors who are out of the market entirely dropped to 11.8% from 12.7%.

Heavy stock concentration declined markedly among older Americans. The percentage of sixtysomethings with at least four-fifths of their portfolios in equities declined to 21.4% last year from 39.7% in 2010.

Overall, the reduction in stock holdings illustrates the fear and frustration that many feel toward stocks after a very disappointing decade. But the report nonetheless appears to undermine the notion that Americans are dumping stocks en masse.

That's due in part, the study says, to the popularity of so-called target-date funds, which automatically redistribute assets among stocks, bonds and other investments as participants get older.

“Growing use of target date funds appears to be helping to keep younger 401(k) participants invested in balanced portfolios, with equity exposure to help their assets grow over the long term,” said Sarah Holden, Investment Company Institute senior director of retirement and investor research. “While our surveys and others have shown that investors are less willing to take on stock market risk, 401(k) plan features are countering that trend for plan participants.”

Still, the study underscored the touchy economic straits that many Americans are suffering through. In 2010, 21% of all 401(k) participants who were eligible to borrow money from their accounts had done so, the same as in 2009 and up 18% from 2008.